MARKET PULSE: Singapore Economy, SMRT, Hoe Leong (17 May 2012)

Stock Name: SMRT
Company Name: SMRT CORPORATION LTD

Research House: OCBC

Price Call: HOLD

Target Price: 1.71

Stock Name: Hoe Leong
Company Name: HOE LEONG CORPORATION LTD.

Research House: OCBC

Price Call: HOLD

Target Price: 0.20

MARKET PULSE: Singapore Economy, SMRT, Hoe Leong

17 May 2012

KEY IDEA SMRT Corporation: Holding firm despite new developments Following a directive issued by LTA, SMRT will begin replacing, with immediate effect, the power supplying third rail at locations where hairline cracks on some parts of the third rail joints are more visible. The cost for this replacements have not been accounted for by management's estimates this year, and we expect to see a slight uptick in this year's capital expenditure with the increase coming from an acceleration of costs from later years. Despite the latest development and ongoing COI hearings, SMRT's share price has managed to hold steady and even outperformed against a backdrop of broad-market declines. At this juncture, we deem the possibility of further sharp sell-offs to be remote as SMRT services and its operational cash flows remain in demand and resilient. Maintain HOLD with a fair value estimate of S$1.71. (Lim Siyi) MORE REPORTS Singapore Economy: Keeping 2012 growth at 1-3% Singapore's Gross Domestic Product (GDP) rose an annualised 10% QoQ in the first quarter according to the Ministry of Trade and Industry (MTI) this morning versus the initial estimate of 9.9% earlier and slightly below the median of 10.6% of economists as polled by Bloomberg. On a year-on-year basis, GDP grew 1.6% versus 3.6% in the previous quarter and the median forecast of 1.8% from the same Bloomberg survey. In the statement, the MTI also highlighted that the "recovery in the global economy remains fragile and vulnerable to downside risks". In Asia, it cautioned that "growth will be curtailed by lacklustre export performances amidst the external headwinds". In view of the uncertainty, the MTI has also kept the full year forecast at 1-3%. (Carmen Lee) Hoe Leong Corp: Steep losses from Malaysian associate Hoe Leong Corp (HOE) reported 1Q12 revenue and gross profit of S$20.6m (+32% YoY) and S$5.3m (+23% YoY) respectively, and these were generally in line with our estimates. However, a steep and unexpected loss of S$3.3m from share of results from associates and JVs (Semua: S$4.2m losses, Aries: S$0.9m profit) led to an overall 1Q net loss of S$0.9m (1Q11: S$1.7m net profit). While we are fairly comfortable about HOE's core business, we remain cautious on its Semua stake. There is also a possibility that Semua's financials could be consolidated in HOE. Given the lack of clarity, we lowered our fair value to S$0.20, based on 0.7x P/B. Maintain HOLD. (Chia Jiunyang)

For more information on the above, visit www.ocbcresearch.comfor the detailed report.

NEWS HEADLINES - US stocks were generally flat on Wednesday, having pared gains on worries regarding Greece. The S&P 500 Index moved down 0.1% and the DJIA climbed 0.1%. - Frasers Commercial Trust, Great Eastern and Far East Organization have unveiled a revitalisation plan for the China Square precinct. The first phase will involve a link way costing S$14m which will be equally shared among the three partners. - Frenken Group has made a pre-conditional offer to buy Juken Technology for 18 S-cents a share, or about S$58.2m in total, including payment for outstanding warrants and options. - SP AusNet will raise A$434m in a share offer to existing investors to help fund expansion, according to Bloomberg. - Otto Marine has won two ship chartering contracts worth US$16.6m for two anchor handling tug supply vessels, improving its position in African waters.